Employee or Self-Employed? HR story highlights hazards

Staff Post
By Heather Young

From time to time I will share stories from the field – names and details obscured!

One company went through a nerve-wracking time when a former worker – who had been hired on a fee-for-service contract as a freelance consultant – tried to claim EI and insisted to the folks at HRSDC that s/he had been an employee.

The government responded by notifying the company that they were responsible for remitting both the employer and the employee portions of EI and CPP for the duration of the contract. It was up to the company to appeal this decision, and prove that the worker had been properly treated as a freelancer.

To help the organization prepare its appeal, the government provided a lengthy questionnaire, much of it based on concepts you can read about in the CRA publication Employee or Self-employed?, published online.

The company also did some research, including checking the former worker’s social networking activities, where the individual clearly self-identified as a consultant for hire. It’s unclear whether that influenced the happy ending – but I can tell you that in at least one comparable case the defendant’s Facebook page did him in.

After many hours of work and months of waiting, the company finally received the happy news that their appeal was successful.

The CRA ruling made a strong effort to be balanced, stating that “the parties did not share a common intention as to the worker’s employment status” – although the company feels the status was always clear.  It outlined all the terms of employment in some detail, noting that the level of “control”, or supervision, of the employee and ownership of tools and equipment were neutral factors – they could have been interpreted to either party’s benefit. The fact that the worker was providing services personally and was not able to subcontract assigned work was deemed  consistent with the worker’s contention that s/he was an employee, but  the fact that the worker was free to take on other projects for personal profit, and promoted him/herself as a freelance communication consultant suggested to the CRA that s/he was “embarking on a business enterprise on his/her own account.”  Weighing all factors, the CRA ruled in the company’s favour: but in reading the written ruling, it looks like it was a close call.

Arts organizations and charities secure all sorts of services on part-time, part-year contracts. It’s worth the effort to research how a particular position should be treated (employee or self-employed?), and to be crystal-clear with the worker both verbally and in a written contract.

Questions About GST/HST? Consider Getting a CRA Ruling.

Staff Post
By Jerry Smith

Have you ever cursed sales tax calculations, or even worried whether a calculation mattered? Have you ever played sales tax roulette – called the help desk at CRA multiple times with the same question until you got an answer you liked?

First, whatever anyone tells you over the phone is – just an opinion! This was confirmed recently when Young Associates hosted two guests from the Canada Revenue Agency GST/HST Rulings Directorate.

If you want a definitive answer, you need a ruling – an official answer that is binding on the CRA, and that responds to the specifics of your situation.

To get a ruling, submit your query in writing. Follow up to determine when it is assigned to an officer. Follow through with the officer; anything they say on the phone as guidance is solid . . . but wait until you get it in writing. Then it is a ruling.

P.S. While the CRA search engine is thorough and massively detailed, don’t be afraid to try user-friendly Google searches, or speak to any officer at the Rulings Hotline, 1-800-959-8287.

Annual T-Slip Deadline – February 29, 2012

Staff Post
By Heather Young 

The annual payroll reporting deadline is looming. T4 and T4A slips must be filed by Wednesday, February 29, 2012.

T4 Slips

In preparation, you should reconcile your payroll accounts: make sure that the balance on your PD7A form (i.e. the total source deductions that the government acknowledges receiving) matches the total of the cheques you issued.

Conduct your own “pensionable and insurable earnings review.” The Canada Revenue Agency (CRA) checks this for every filer. Before you submit your T4s, you should confirm that the correct CPP and EI amounts were withheld, and were properly matched with employer contributions. If you find any shortage, it needs to be accrued to the employee record and remitted to the CRA.

Review your company’s employment relationships for any taxable benefits. Taxable benefits are items above and beyond payroll that have a value for employees, and that the CRA considers taxable income. Check this page on the CRA website for information about cell phones, parking, transit passes, insurance, gifts and other benefits.

Taxable benefits should be processed on a pay period by pay period basis, as required by law. If you’ve overlooked something, though, be sure to record it and remit the appropriate taxes at payroll year-end.

T4A Slips

Here’s the CRA’s word on when you need to issue T4A slips.

For small not-for-profits, including arts organizations, the most common requirement is to document “fees or other amounts for services.” This includes freelancer and self-employed contractor fees and, indeed, fees paid to any unincorporated business. (That is, cases where the fees are to be reported on a personal income tax return.)

Amounts paid to freelancers are to be reported on Box 48 of the T4A slip.

Here’s what the Canadian Payroll Association says about T4As: “The CRA is currently conducting a review of the types of payments that payers will be required to report in this box (i.e. Box 48). While this reporting requirement may be expanded in the future, it currently applies only to payers of independent or self-employed contractors, who should report any fees (excluding GST/HST) on the T4A using Box 48.”

Late filing

The penalties for late filing of T4 and T4A information returns can be found here on the CRA website.

Questions? Please contact us or comment below and we’ll do our best to help!

Municipal Property Tax Rebate for Ontario Charities – Prepare to File on February 29, 2012

Staff Post
By Heather Young 

Don’t miss out!

February 29, 2012 should be circled in your calendar for more than just T-slip filing.

Under Ontario law, municipalities must offer a rebate of at least 40% of property taxes to charities that occupy commercial or industrial property. Municipalities can rebate up to 100% of the tax if they wish, and can also offer rebates on other classes of property.

Charities should contact their local municipality, and/or consult its website to learn how to apply for this money.

Toronto registered charities that occupy commercial or industrial property may be eligible for a rebate of 40% of property taxes paid if they meet the eligibility requirements, as outlined in Section 329 of the City of Toronto Act, 2006.

A description of Toronto’s program and application form can be found on this page on the City of Toronto website.

Don’t wait till the last moment!

Leave yourself plenty of time to round up the documentation and complete the form. Requirements vary, but may include securing a letter from the Canada Revenue Agency Charities Directorate confirming your registration status, plus a letter and/or tax information from your landlord.

You can apply for these rebates every year on the last day of February after the tax year in question.

Ten Tips for Making Clear Connections Between your Database and Financial Software

What is a database? A database is a means for organizing, storing, managing, and retrieving information. Your fundraising, box office, sales and accounting software are all considered to be types of database software.

Bookkeeping packages (e.g. QuickBooks, Simply Accounting) spreadsheets (e.g. Microsoft Excel) and database software (e.g. Sumac) are electronic tools for delivering a narrative on your operations and programs.  It is essential that you pay attention to the stories they tell;  it is equally important that these different sources communicate effectively with each other in order to deliver a  meaningful tale.

1. Who’s doing the talking? It is important to be consistent when communicating financial information. Decide which system will do the talking and which will do the listening. Having information flow in one direction will reduce errors, confusion, or missed transactions. Multiple databases in a single organization should be used simultaneously and reconciled to each other on a regular basis. Integrating your databases into your daily routine will help to support sound management.
2. Speaking the same language. When communicating financial information from one system to another it is important that the allocation is the same in both systems. For example, if you are tracking donations that are associated with a certain project or event in your database software, make sure you make the same allocation in your accounting software. This will help in the future when pulling reports from either system or doing reconciliations.
3. Doing a little bit at a time. Errors more often happen when you try to condense information. While it might be more efficient to do weekly reports, errors may occur if financial information provided by the database software doesn’t match what is in the bank. For example, if you are doing daily credit card batches, than weekly reports may not catch the information you need. Batch totals and generated reports need to have the same time parameters. Keep things simple and work on a consistent basis. While it might take a little longer initially, it will make it easier to identify errors, saving time in the long run.
4. Take time for the details. It might be easier to group contact information together when going from one system to another, but it can contribute to errors. Make sure whatever information you are tracking in one system is communicated to the other system. For example, record individual names and donation amounts rather than a batch total.
5. Keep an eye on things. Try doing regular reconciliations and comparisons between your database software and financial software. Tracking as you go will make doing a year-end reconciliation go smoothly, and will help you know where you are in regards to budget vs. actual.
6. Remember what you did. You are only as good as your information. (Garbage In/Garbage Out). If your database software gives you the option to record communications, such as emails, memos, or notes, try using the function with regards to financial transactions. If you have special notes relating to a transaction, record it in the communication notes for that contact for easy reference.  Storing important information pertaining to donors or other contacts will contribute to organizational history and make staff transitions easier.
7. Don’t leave it to the last minute. We are often leaving grant reports and year-end audits until the last minute, when it can be a headache to go back through months of activity to get the information needed for the report. Track as you go in both the database software and financial software. Doing it in both will act as a double check to make sure the numbers are correct, as well as take some of the stress of that last minute report.
8. It’s okay to anticipate. It is common to anticipate transactions, especially those reflecting revenues (eg. Held tickets, pledges, and confirmed grants). Make sure that if you are entering an anticipated transaction into your database software as a receivable, that you communicate that information to the financial software. Not doing so could result in double counting the revenue when the money does actually arrive. Be sure to compare receivables list from all databases on a regular basis.
9. Break it down. Most database software packages will allow you to break out details on transactions. Breaking out gross amounts, taxes, and any service fees applicable will help eliminate errors or the need for further calculation when entering data into the financial software. Make sure you have taken full advantage of all the setup features to automate standard charges (eg. service charges and sales taxes).
10. Where it all belongs. Similar to your financial income statement where revenues are tracked on a yearly basis, it is important to do the same in your database. Most database software doesn’t have the concept of deferred revenue, so you may have to indicate what year funds are allocated to. For example, allocating things like donations, grants, and ticket sales to your 2009-2010 season will make reconciling and reporting easier. It will also help in the budgeting process when you are able to pull up reports with precise data pertaining to certain years.

This tip sheet was created by Samantha Zimmerman of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

Disclaimer

Ten Tips on Being a Better Bookkeeper for Smaller Organizations

1. Plug into the bigger picture. Maintaining the accounting records is a foundational element of financial management, and of the management decision-making process. If you only think about posting entries, then you’re probably not giving the client everything they need. Most small organizations need a bookkeeper who can help them manage their financial statements.
2. Keep your eyes on the prize. The ultimate goal of bookkeeping is to issue financial statements. Each session should probably end with you giving the client a report of some sort, e.g. year-to-date statements, or at least a progress update describing what was accomplished today. This engages the client in the process, and reinforces your value to management.
3. Check your own work. The bank reconciliation is a standard verification step. So is checking the invoice detail contained on supplier statements to the invoice detail in the General Ledger. What other steps can you take to prove the accuracy of your work before you issue reports? You may use different techniques in different circumstances, depending on the nature of the transactions.
4. Read reports before you hand them over. Beyond doing account reconciliations, it’s important for you to read the financial statements before you hand them to the client. This will help you pick up misallocations and other errors that your verification steps may not have caught. It also ensures that you are familiar with the statements as complete documents. This is of much higher value to the client than handling a bunch of individual transactions!
5. Encourage the client to read their statements. This may be more easily said than done, depending on the client. Clients who don’t read their financials are always bad news. Sooner or later something will go wrong that will require them to respond. If they aren’t familiar with those documents, look out! It’s much harder to explain something “under the gun.” Regular review builds their ability to interpret both good and bad news, and encourages them to understand and trust your work. Reading the statements with them can offer an excellent opportunity for you to share your expertise – and for the client to keep you fully up to date with the organization’s activities as they affect your work.
6. Be aware of the tax rules. Whether you handle the client’s government reporting, or whether you hand it to an accountant, it’s to your advantage to be aware of the rules. Even the smallest organizations are likely to have some dealings with the Canada Revenue Agency, and perhaps with provincial and municipal tax departments. You’ll almost certainly need to know the basics of payroll and sales taxes. If you’re working for charities or not-for-profits, you need to be aware of the particular filings they may need to make (e.g. T3010B, T2 Short, GST/HST rebate claims).
7. Maintain proper documentation. Ideally, each transaction will be documented by an invoice, contract, receipt, petty cash report, cash register tape, or other third party or internally generated explanation. Decide what you need to retain in the case of direct debits, electronic funds transfers and other online transactions. Know the Canada Revenue Agency records retention rules, which are available on their website at www.cra.gc.ca. In most cases (but not all), you must maintain full detail for the current fiscal year plus six previous. Financial statements and general ledgers must be maintained back to the start of the organization. Make sure that your electronic records can be read for the full retention period. This may mean updating software and transferring documents off old media (remember floppy discs?) onto something current.
8. Maintain a good audit trail. The audit trail links the steps in the bookkeeping process, from source documents to financial statements. Your software probably enforces a certain amount of audit trail notation – for instance, by making you enter invoice numbers in the purchases journal, to link the entry back to the paperwork. You can strengthen the process by recording the account number and a posting reference (e.g. journal entry number) on the invoice. If the organization hires a chartered accountant to perform an annual audit, they will appreciate the clarity this adds to the records. A good audit trail will also help you to review your work and respond to client questions.
9. Keep pace with change: adapt your system and processes. “The way we’ve always done it” can’t last forever – or we’d all still be adjusting our eyeshades as we bent over our quills and inkwells! As new technologies emerge, and as the client’s needs for reporting change over time, think about your software, paper and electronic records, office processes, and the layout of the financial statements (chart of accounts). From time to time, it will probably be to your and the client’s benefit to update. Your ability to take the lead in proposing improvements underscores your value to the organization.
10. Help the client to help you. Determine what you need from them in the way of documentation and instructions. Work out a clear process for getting the information, and for storing records once they’ve been entered. Establish reasonable deadlines – for them providing the raw materials, and for you providing reports. Discuss what reports are required, in what format, and who will receive them. A good bookkeeper can help to create a structured process that makes accounting clearer and easier for everyone – including you!

This tip sheet was created by Heather Young of Young Associates. Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, focused on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

Disclaimer